Is now the right time to refinance your home? What does that even mean? What’s in it for you? PrimeLending is here to answer these and other questions as you consider refinancing.
Is this a good time to refinance?
If one or more of the following scenarios applies to you, it may be a good time to look into refinancing:
1. Your home has greatly appreciated in value. Occasionally, certain regions of the country experience a significant rise in home prices. Refinancing allows you take advantage of your home’s increased equity.
2. Mortgage interest rates are falling. If market rates drop ½% to ⅝% below your current interest rate, it could be a good scenario for you to refinance your home. In a market where interest rates are falling, there are two potential benefits that could help lower your overall loan amount.
- The first option would allow you to shorten the terms of your repayment while still making the same or comparable payment amounts.
- The other option allows you to lower your monthly payments while keeping the same or comparable repayment term. Either way, you find yourself with a way to save money on your mortgage investment.
3. You are early in your mortgage term. Refinancing at this point, when payments are mostly being directed towards interest, tends to benefit you more than later in the life of the mortgage when payments are going more toward the principal than the interest.
We recommend not jumping into refinancing as soon as one of these factors, like falling interest rates, does come in to play. To make the best decision for you and your financial situation, you’ll want to consider all the contributing factors, such as how long you plan to stay in the home and how going through the process would help you achieve your long-term financial goals. If you are considering refinancing, PrimeLending will be happy to offer timely, expert advice.
What are the benefits of refinancing?
It’s important to remember that refinancing starts homeowners off with a new mortgage entirely; it takes them back to the beginning of the payment process. But, the benefits of starting over with a new mortgage may be entirely worth it. Homeowners are able to:
- Change their loan from a balloon or an adjustable-rate mortgage to a fixed-rate mortgage and thereby lower the risk of a changing interest rate.
- Decrease their monthly mortgage payments by lengthening the repayment term or changing to a lower interest rate.
- Benefit from the lower mortgage interest rates, allowing homeowners to decrease the interest costs over the life of the loan.
- Shorten the term of the loan and pay off the loan quicker.
- All of this frees funds to help consolidate other debts and put toward other expenses such as a college fund, retirement, home improvements or any other major expenses
What Is the Best Way to Refinance?
When making the decision to refinance, consider all your options and pick a plan that will best help you meet your financial goals.
What Types of Loans are Available?
- Fixed Rate: With established and predictable monthly mortgage payments.
- Adjustable Rate: The rate of an adjustable-rate mortgage is designed to change with the movements of the market index to which it is linked.
- Cash Out Refinance: While rate-term refinances can change the repayment terms or decrease the interest rate, or both, a cash out refinance provides a higher loan amount than the current mortgage. This excess then can be used to consolidate debt, put toward home improvements, or dedicate to educational funds or other investments.
Which Loan Term is Right for Me?
Repayment schedules can vary greatly. Fifteen to 30 years are the most commonly found repayment schedules, with the 15-year mortgages typically offering lower interest rates than those found with 30-year mortgages. Likewise, you would pay substantially less in total interest if you were to stay with the 15-year mortgage through the life of the loan.
A shorter term is often the best choice if you plan to own the home for the full life of the loan. Although this can set you up with higher monthly payments, it will decrease your interest rate and reduce the amount of interest you pay overall.
If you have plans to own the home for less than seven years, however, you may be best served by going with a longer term of repayment. While this could set you up with a slightly higher interest rate, it could provide you with lower monthly payments since they are spread over a longer period of time.
How to Prepare for a Refinance Closing
How Does Closing a Refinance Work?
As with the closing for your purchase, you’ll have several documents to sign at the closing for your refinance. Your former mortgage will be closed out, and you will begin again under the new loan structure established in your refinance agreement.
How Do You Prepare for Closing?
As your closing date approaches, you’ll want to be sure to stay in good contact with your loan officer. Although you’ve gone through the closing process before, you want to make sure the refinance process goes smoothly as well. Being prepared will always pay off in the end. Here’s what you’ll need:
- Documents: Verify that you have the documentation needed to move forward into closing.
- Credit: Review your credit history. To make sure you have good credit standing, refresh yourself on how your credit score is derived and also on ways to keep your credit clean.
- Insurance: Confirm that your insurance policies provide appropriate coverage for your home’s value and contents. Also, double-check that the policy reflects the name of your refinance lender as the payee for losses.
- Rate: Consult with your PrimeLending loan officer about locking in your interest rate before you close. Locking a rate before you close will provide protection for you if rates should rise before your closing date.
- Escrow: Examine your current loan’s escrow account and determine if a surplus or deficiency of funds exists.
- Closing Costs: Arrange to bring to your closing appointment a cashier’s check made out for the exact amount you’ll need.
PrimeLending strives to make this process smooth for our customers. You should now be able to enjoy all the benefits provided by refinancing your home.